The U.S. government sued Bank of America, the second-largest U.S. bank by assets, accused of defrauding investors in a $850-million transaction of mortgage securities, according to the Wall Street Journal (WSJ).
Department of Justice and the Securities and Exchange Commission (SEC) filed separate civil suits against the bank and two of its subsidiaries in the North Carolina federal court.
“Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors. Now, Bank of America will have to face the consequences of its actions,” said Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.
The government claims that Bank of America misinformed investors about the risks associated with securities sold by the bank in 2008. Representatives of Bank of America said that the value of the mortgage bonds severely dropped after the collapse of the U.S. housing market, which can not be attributed to the bank.
The case highlights how U.S. authorities have not yet managed to solve all the issues on the behavior of banks in the run up to the 2008 financial crisis. In another recent action by the U.S. civil courts regarding mortgage transactions in the period before the crisis, Swiss bank UBS agreed to pay a fine of $50 million to settle charges brought by the SEC.
Bank of America has promised, however, that it will challenge the charges.
“We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result,” a Bank of America said, calling the loans “prime mortgages.”
Department of Justice notes that the number of loans in default after the 2008 transactions reached unusually high figures and can not be justified only by the housing market collapse. The government also claims that over 40% of the nearly 1,200 mortgage securities were non-complying with the internal standards of Bank of America at the time. The complaint also states that the bank has exercised a strong pressure on employees to determine them to approve as many loans as they could, paying no attention to risks.
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